Question 1

A business organized as a corporation
A) is not a separate legal entity in most countries.
B) requires that shareholders be personally liable for the debts of the business.
C) is owned by its shareholders.
D) terminates when one of its original shareholders dies.

Accepted Answer

A corporation is a separate legal entity from its shareholders, meaning the business can enter into contracts, sue or be sued, and own property in its own name. The shareholders own the corporation through their ownership of its stock, but they are not personally liable for the business's debts, and the corporation can continue to exist even if one of the original shareholders dies.

Question 2

A small neighborhood barber shop that is operated by its owner would likely be organized as a
A) joint venture.
B) partnership.
C) corporation.
D) proprietorship.

Accepted Answer

A proprietorship is a type of business organization in which an individual owns and operates the business. Given that the neighborhood barber shop is owned and operated by a single owner, it is likely organized as a proprietorship. Joint venture, partnership, and corporation involve multiple parties, which is not the case here.

Question 3

The common characteristic possessed by all assets is
A) long life.
B) great monetary value.
C) tangible nature.
D) future economic benefit.

Accepted Answer

The common characteristic possessed by all assets is future economic benefit, meaning that they have the ability to generate revenue or reduce expenses in the future. This is true for both tangible and intangible assets, and their life and monetary value can vary.

Question 4

A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the
A) stand alone concept.
B) monetary unit assumption.
C) corporate form of ownership.
D) economic entity assumption.

Accepted Answer

The economic entity assumption requires that activities of an entity be kept separate from the activities of its owner. This means that the entity, whether it is a business or a nonprofit organization, is considered to have its own separate existence, independent of its owners or shareholders. This assumption is important for financial reporting purposes because it ensures that the financial statements accurately reflect the financial position and performance of the entity, rather than the owner or shareholders' personal financial situation.

Question 5

Bumi Corporation purchased an investment in the ordinary shares of another corporation for Rp250,000,000 in 2012. The shares are actively traded on the Indonesian Stock Exchange. The fair value of the investment at December 31, 2014 is Rp268,000,000. If the company follows the fair value principle, the investment will be reported in the 2014 financial statement at
A) Rp250,000,000 on the statement of financial position.
B) Rp268,000,000 on the statement of financial position.
C) Rp250,000,000 on the retained earnings statement.
D) Rp268,000,000 on the retained earnings statement.

Accepted Answer

According to the fair value principle, the investment should be reported at its fair value, which is Rp268,000,000 as of December 31, 2014. Therefore, the investment should be reported at Rp268,000,000 on the statement of financial position. Choice A and C are incorrect because they do not reflect the fair value of the investment. Choice D is incorrect because the investment should be reported on the balance sheet, not the retained earnings statement.

Question 6

Liabilities
A) are future economic benefits.
B) are existing debts and obligations.
C) possess service potential.
D) are things of value used by the business in its operation.

Accepted Answer

Liabilities are existing debts and obligations. They represent the amount owed by an entity to another party as a result of past transactions or events. Liabilities can include loans, accounts payable, salaries payable, and taxes payable. They are recorded on the balance sheet as a separate section from assets and equity, and their balances are subtracted from assets to calculate the entity's net worth or equity.

Question 7

Which of the following is not an advantage of the corporate form of business organization?
A) Limited liability of shareholders
B) Transferability of ownership
C) Unlimited personal liability for shareholders
D) Unlimited life

Accepted Answer

The unlimited personal liability for shareholders is a disadvantage of the corporate form of business organization. This means that shareholders can potentially be held personally responsible for the debts and obligations of the company. The other options listed are advantages of the corporate form: limited liability protects shareholders from being held personally responsible for the company's debts, transferability of ownership allows for easier buying and selling of shares, and unlimited life means that the company can continue to exist beyond the lifetimes of its shareholders.

Question 8

Asian Company purchased land for W92,000,000 in 2000. At December 31, 2014, an appraisal determined the fair value of the land is W106,000,000. The company has an investment in the ordinary shares of another company for which it paid W49,000,000 in 2012.The shares are actively traded on the South Korea Stock Exchange. The fair value of the investment at December 31, 2014 is W63,000,000. The land and investment will be reported on the December 31, 2014 statement of financial position at
A) W92,000,000 and W49,000,000, respectively.
B) W92,000,000 and W63,000,000, respectively.
C) W106,000,000 and W49,000,000, respectively.
D) W106,000,000 and W63,000,000, respectively.

Accepted Answer

The answer of Asian Company purchased land for W92,000,000 in...

Question 9

The assumption that enables accounting to quantify (measure) economic events is the
A) economic entity assumption.
B) cost principle.
C) historical cost principle.
D) monetary unit assumption.

Accepted Answer

The monetary unit assumption assumes that only money transactions that can be expressed in monetary units are recorded in accounting records. This enables accounting to quantify economic events using a common unit of measurement, which is the monetary unit.

Question 10

The economic entity assumption requires that the activities
A) of different entities can be combined if all the entities are corporations.
B) must be reported to the Securities and Exchange Commission.
C) of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
D) of an entity be kept separate from the activities of its owner.

Accepted Answer

The economic entity assumption requires that an entity's activities be kept separate from the activities of its owner. This means that the financial transactions and events of the business must be recorded and reported separately from the personal financial transactions of the owner. This assumption is important for accurate financial reporting and analysis.

Question 11

The basic accounting equation may be expressed as
A) Assets -Equity = Liabilities.
B) Assets - Liabilities = Equity.
C) Assets = Liabilities + Equity.
D) All of these answer choices are correct.

Accepted Answer

The answer of The basic accounting equation may be expressed...

Question 12

Hyundai Inc. purchased land for W118,000,000 in 2005. At December 31, 2014, an appraisal determined the fair value of the land is W136,000,0000. If Hyundai follows the cost principle, the land will be reported on the statement of financial position at
A) W100,000,000.
B) W118,000,000.
C) W136,000,000.
D) W154,000,000.

Accepted Answer

According to the cost principle, assets should be recorded at their original cost, which in this case is W118,000,000. Therefore, the land will be reported at its original cost and not at the fair value of W136,000,000.

Question 13

Equity is best depicted by the following:
A) Assets = Liabilities.
B) Liabilities + Assets.
C) Residual equity + Assets.
D) Assets - Liabilities.

Accepted Answer

Equity is the value of an asset minus any liabilities on that asset. Therefore, the equation for equity is Assets - Liabilities.

Question 14

Liabilities of a company would not include
A) notes payable.
B) accounts payable.
C) wages payable.
D) cash.

Accepted Answer

Liabilities are obligations that a company owes to others, usually involving the payment of cash or providing goods or services in the future. Notes payable, accounts payable, and wages payable are examples of liabilities because the company owes money to another party. However, cash is an asset, not a liability, because it represents resources that the company owns and can use to meet its obligations.

Question 15

The partnership form of business organization
A) is a separate legal entity.
B) is a common form of organization for service-type businesses.
C) enjoys an unlimited life.
D) has limited liability.

Accepted Answer

The partnership form of business organization is a common form of organization for service-type businesses, such as law firms, accounting firms, and medical practices.

Question 16

John and Sam met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a
A) joint venture.
B) partnership.
C) corporation.
D) proprietorship.

Accepted Answer

A partnership is the most common form of business organization for a small law practice, as it allows for the splitting of revenues and expenses between the partners. A joint venture is a temporary partnership for a specific project, and a corporation would involve more complex legal and financial requirements. A proprietorship would not be appropriate as it involves a single owner, rather than a partnership between two or more individuals.

Question 17

The proprietorship form of business organization
A) must have at least three owners in most states.
B) requires that the owner be personally liable for all debts of the business.
C) combines the records of the business with the personal records of the owner.
D) is characterized by a legal distinction between the business as an economic unit and the owner.

Accepted Answer

The proprietorship form of business organization requires that the owner be personally liable for all debts of the business. There is no requirement for a specific number of owners, and the proprietor's personal and business records are not combined. However, there is no legal distinction between the business as an economic unit and the owner, as the owner and the business are considered one and the same from a legal standpoint.

Question 18

Harrod's Inc. purchased land for ₤55,000 in 2004. At December 31, 2014, an appraisal determined the fair value of the land is ₤65,000. If Harrod's follows the historical cost principle, in the 2014 financial statements, the land will be reported at
A) ₤55,000 on the statement of financial position.
B) ₤65,000 on the statement of financial position.
C) ₤55,000 on the income statement.
D) ₤65,000 on the income statement.

Accepted Answer

According to the historical cost principle, assets are recorded at their original cost. Therefore, the land will be reported at its original cost of ₤55,000 on the statement of financial position. The fair value of the land will not be reflected until it is sold or otherwise disposed of. The income statement is not affected by the change in the fair value of the land.

Question 19

A business whose owners enjoy limited liability is a
A) proprietorship.
B) partnership.
C) corporation.
D) sole proprietorship.

Accepted Answer

A corporation is a form of business organization that offers limited liability to its owners, meaning that they are not personally responsible for the debts and obligations of the corporation. A proprietorship and sole proprietorship offer no limited liability protection, and in a partnership, each partner is personally responsible for the partnership's debts and obligations.

Question 20

Which of the following is true regarding the corporate form of business organization?
A) Corporations are the most prevalent form of business organization.
B) Corporate businesses are generally smaller in size than partnerships and proprietor-ships.
C) The revenues of corporations are greater than the combined revenues of partnerships and proprietorships.
D) Corporations are separate legal entities organized exclusively under federal law.

Accepted Answer

According to data from the U.S. Census Bureau, corporations typically generate higher revenues than partnerships and proprietorships. However, it is not true that corporations are the most prevalent form of business organization or that they are organized exclusively under federal law. While corporations are a separate legal entity, they are established under state laws. It is also not accurate to say that corporate businesses are generally smaller in size than partnerships and proprietorships.

Quiz 1: Accounting in Action

A business organized as a corporation

A small neighborhood barber shop that is operated by its owner would likely be organized as a

The common characteristic possessed by all assets is

A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the

Liabilities

Which of the following is not an advantage of the corporate form of business organization?

The assumption that enables accounting to quantify (measure) economic events is the

The economic entity assumption requires that the activities

The basic accounting equation may be expressed as

Hyundai Inc. purchased land for W118,000,000 in 2005. At December 31, 2014, an appraisal determined the fair value of the land is W136,000,0000. If Hyundai follows the cost principle, the land will be reported on the statement of financial position at

Equity is best depicted by the following:

Liabilities of a company would not include

The partnership form of business organization

John and Sam met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a

The proprietorship form of business organization

Harrod's Inc. purchased land for ₤55,000 in 2004. At December 31, 2014, an appraisal determined the fair value of the land is ₤65,000. If Harrod's follows the historical cost principle, in the 2014 financial statements, the land will be reported at

A business whose owners enjoy limited liability is a

Which of the following is true regarding the corporate form of business organization?